IRS OKs Tax Payments by Debit Card

The IRS has adopted final regulations authorizing the Commissioner to accept payment of internal revenue taxes by credit card or debit card and to limit the use and disclosure of information relating to the payment of taxes by credit card and debit card. The final rules apply to payments of taxes made on or after December 14, 2001.

Under the final rules, only credit cards or debit cards approved by the IRS may be used for making tax payments. The IRS has entered into contracts with third-party service providers that will process the credit and debit card transactions. The Service is not allowed to impose any fee on taxpayers making payment by credit or debit card; however, other persons participating in the program, including the third-party service providers, are not prohibited from charging fees.

The final regulations contain provisions designed to ensure that any disputes concerning the merits of the tax liability will be resolved in the traditional administrative and judicial forums and will not be raised in any dispute with the card issuer, financial institution or other person participating in the credit card or debit card transaction. Further, the IRS is permitted to return funds erroneously received due to errors relating to the credit or debit card account by arranging for a credit to the taxpayer's account. Returns of funds through account credits are available only to correct errors relating to the account and not to refund overpayments of taxes.

With respect to the use and disclosure of information relating to the payment of taxes by credit or debit card, the final rules provide that information received by any person in connection with the payment of tax by credit or debit card is to be treated as confidential by all persons who receive the information. IRS personnel are authorized to disclose to card issuers, financial institutions and other persons the information necessary to process the tax payment or to bill or collect the amount charged or debited. Selling the information, sharing it with credit bureaus or using it for any marketing purpose is prohibited.

The final regulations clarify that sending receipts or confirmation of a transaction to the taxpayer, including secured electronic transmissions and facsimiles, is a permissible disclosure. Further, the disclosure of information necessary to complete a transaction by the taxpayer with a state or local government agency is permissible when it is explicitly authorized by the taxpayer.

Finally, the regulations provide that checks and money orders should be made payable to the United States Treasury.